Bay well positioned to lead NZ recovery | Hawkes Bay News | Local News in Hawkes Bay

Hawke's Bay has the economic structure needed to lead a recovery in New Zealand, says ANZ economist Cameron Bagrie.

As the opening speaker on Wednesday at the two-day UnisonFibre Business Expo in Ahuriri, he said the debt-fuelled growth of the past had left many countries "like a cart travelling downhill ahead of a stationary horse".

"New Zealand needs to earn its way to growth as opposed to spending it way to growth," he said.

"We've had the spending-driven growth model for the past 15 years, and there is still going to be spending across this economy, but the challenge Hawke's Bay has is to get that horse in front of the cart.

"This kind of adjustment is going to play to a lot of Hawke's Bay's strengths.

"There are a lot of industries like viticulture, horticulture and sheep that are under a lot of pressure at the moment. But Hawke's Bay has got the semblances of earning sector capabilities. You've got the horse.

"This is a journey that is going to take five to 10 years."

Mr Bagrie said we were at the start of "a new world order" of economic regulation, with New Zealand no exception. He said policymakers had learned they could not rely on just one instrument to control economies.

"Banks now need deposits of one year or more. The only way to get more deposits is to put up the interest rates.

"The new rule is having some quite amazing impacts because the banks have to pay more for five-year money relative to one-year money."

He said New Zealanders were now putting their mortgages increasingly on floating interest rates which meant OCR changes "give a lot more bang for their buck".

"This also means that as the recovery speeds up, the demand for borrowing will have to be matched with a rise in deposit rates, with commensurate rise in borrowing rates. So there is a natural hand brake on the economic system."

He said the OCR would still be the primary instrument that central banks used but they should not have to use it as often, so it should stop the currency rising relative to our trading partners.

"Hawke's Bay, with a very strong export base, should be very happy about this."

New Zealand's economic ills were the fault of the past popularity of property, he said.

"There was a common belief that land prices would go up 10 per cent a year. It didn't matter that income went up only 5 per cent. We thought that was a sustainable model.

"People were also introduced to finance companies. The finance companies also put their money into the property market.

"The rural sector got caught up in this thing, particularly dairy.

"I can remember a conversation at the start of this year with a developer who converted farms to dairying, about how out of whack things had got.

"He said the penny dropped for him the day his builder flew to work in his helicopter."

Mr Bagrie said the coming change in economic behaviour, driven voluntarily or by regulation, would mean the coming growth phase would not be normal in the short term, but would even out the traditional boom-bust cycle in the long term.

"Things are still tough but I'm optimistic," he said.